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Meta's Major Momentum, Tesla's Major Pivot, and Microsoft's Major Problem 1/29/26
00:44:17
Meta shares are surging, but will its big capex spending plans pay off? Tesla trades its Model X and S vehicles for humanoid robots. Plus, can Microsoft play catchup in the AI race?
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Kelly Evans
Martha listens to her favorite band all.
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Brent Thale
The time in the car, gym, even sleeping.
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Kelly Evans
So when they finally went on tour, Martha bundled her flight and hotel on Expedia to see them live. She saved so much she got her.
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Dom Chu
Seat close enough to actually see and hear them. Saw dog.
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Kelly Evans
You were made to scream from the front row. We were made to quietly save you more Expedia made to travel savings vary and subject to availability. Flight inclusive packages are atoll protected.
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Brent Thale
ABC's David Muir, most trusted anchor in America.
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Kelly Evans
The most watched anchor in America.
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Brent Thale
Thank you for making World News Tonight.
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Kelly Evans
With David Muir the number one newscast in America. Most trusted most watched David Muir on abc. You're listening to the Exchange. Here's today's show. Thank you very much, Scott. Meta's mega print, Tesla's mega pivot and a mega plot twist in the dollar story and the chart that explains it. Welcome to the Exchange. I'm Kelly Ev Lets start with the market. Some big moves today and in fact, we're largely struggling in the red everywhere. As you can see amid another big sell off in the software names. The NASDAQ was down more than 2% earlier. The Dow for its part, is actually only down about 410 right now in the 10 years below 423. Now, Microsoft and the software names, the likes of Salesforce and Servicenow, those are leading the declines today. The IGV ETF is down 6%. Microsoft is down almost 12% for its worst day in more than five years. A hat tip to the trader who's been messaging me for weeks saying the stock was acting like a miss was coming. It certainly was. I don't know if it's a miss, but it's continuing to act like there's a real problem in the growth trajectory here. Bear market territory for the IGV ETF. By the way, we're down 20% from the recent highs. On the flip side, social media is a standout with Meta jumping on a big revenue and guidance Feed. It's up 9 and a half percent now and Apple is coming after the bell today. The shares are kind of a standstill into that print. We're also watching a big reversal in the metals trade this morning after gold crossed 5500 for the first time. We're back at 5337 right now. But copper has levitated. It's now surging to a new high, up 5% to its best day in more than 17 years. So let's begin with the outperformer Metta. The shares are up 8% on a big revenue and guidance beat the move higher despite big capex spending plans that could total $135 billion this year. But my next guest says the results prove the spend is justified. He said buy into the print earlier this week and he just upped his target today to 1000 from 9 10. That makes him one of the highest on the street. Last, let's bring in Brent Thale, Jefferies tech sector research analyst. Brent, a hat tip to you. And this goes back to what we were saying yesterday. It doesn't have to be that the shares are strong if they pull in capex plans and weak if they don't. They just have to justify the capex plans. So to those who are now questioning whether this pace of spend can literally be sustained by their cash flows, what do you tell them?
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Brent Thale
It can. And we think the stocks go into a thousand, they're going to do 36 earning power and you can actually lower the multiple on it and get much better outcome in terms of the stock.
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Kelly Evans
Is this all because when certain friends of mine are on Instagram, Instagram's algorithm has improved, its ad load is higher. It's making, it's just printing money as a result. Is that what's going on here?
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Brent Thale
Yeah, I think the investments in I have really paid off. When you look up, look at it, they've been investing in AI and that's paid off in terms of keeping you on the platform and letting advertisers connect with that community. And going forward, I think the world of this immersive Internet and world that they're creating is so different than what Google and others are creating. So we've said that. I think the future of what Zuckerberg is trying to create is one that aligns with our view, which is, it's differentiated, it's unique and that they can monetize this and that they've proven that the first wave of AI is paid off now the second wave of I can they make that work. And I think Zuckerberg was interrogated multiple times on the call, you know, can this, can this pay off? And I think he said that we don't really know yet. But I do think that, that this will pay off. We, we believe in a shared vision of what they're trying to create.
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Michael Gapen
Yeah.
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Brent Thale
And they're demonstrating that. And you're seeing an acceleration in revenue growth. So the most important thing you're seeing is that acceleration.
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Kelly Evans
Absolutely. And I take your point. It's the Nvidia story to some extent that, you know, the multiple is going to go down because of what you. We could dwell on this, but I just want to ask you about Microsoft, which you also cover. Horrible day for the name. It's been trading poorly for months, frankly. Probably an open AI problem, maybe it's a software problem. But I look at your write up of the quarter and you saw a lot to like here. Am I wrong about that? What's the disconnect?
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Brent Thale
The disconnect is there's an inflection in meta's growth and inflection in semiconductors and inflection and energy. It's not that Microsoft is bad, it's just that the numbers are not inflecting in AI. And so what you're seeing is money moving to other names. You're seeing money moving out of software. Our desk at Jefferies is massively for sale. Not from just hedge funds, but long only. And we are seeing that capitulation and long only selling. So these are the big sticky long only that are effectively saying uncle, I'm out. And that was not a down 12% print for Microsoft. It was, it was a down 2 or 3. The problem is that there's so much more excitement going on when you look at lam research, you look at what's going on in the build out of infrastructure is software has not come to AI has not come to software yet. And so I think you're not seeing positive revisions in software that you're seeing in semis and other sectors outside of our group. And so if we had a normal environment, stock's down a couple of percent. But I mean look, their backlog, their signings, the contract commitments are great. Did Amy Hood maybe fumble in terms of the 45% of the backlog question? You know, what are they going to do with open. I think maybe that was a little bit of miss on their part, but she's phenomenal and she's again among our favorite favorites in the industry. So I think you know, when she said like, you know, you've got to really ask the question about the other 55% of the business growing 20%, 340 billion of backlog is the right one to focus on. And so their business is really healthy. It's just it software right now investors are worried that things are slowing before air has even got to it. And, and what you're seeing is an inflection in other spaces. So we're just seeing one of those capitulation moments. What I've said is in these moments you kind of just have, you can't really do Anything, you got to sit it out. And again, I think you're seeing again inflection in other places. So our tech team is focused. Names like matter. We think Amazon's business will inflect any of us. Google's doing phenomenally well. These infrastructure names in air still the place to be. And until the dust clears on the other sectors, I think everyone's going to stay away, away from that group and they'll come back to it at some point.
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Kelly Evans
Yeah, hardware is the new software, as Jim Cramer was saying again this morning. Victoria Green was talking about that on the program last week. And this is all stemming from the AI trade. So quickly, Brent, also on this issue about Microsoft partnering with OpenAI and again and again we've asked since the launch of Gemini if Gemini, which is powered by its own chips, is deflating the open air trade and again Microsoft would seem to be hinting at yes, it is. Does that mean that we should expect Alphabet to absolutely blow it out next week? Is the bar too high or are they potentially doing so well that it's causing problems up and down the kind of open air value chain?
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Brent Thale
I think it's pretty clear the open air orbit right now is, is deflated. I mean you look at Oracle, you look at Microsoft, the providers, there's concern. I think it's overly negative. And remember last Q1, Google, everyone thought I was going to kill Google and Google is one of the best performers. I think the sentiment is the same thing and OpenAI, I don't know why it's this negative. Yeah, Anthropic is doing well and Google's doing well. But we've said there's going to be three, four or five vendors that do well. There's not going to be 30 because of the capital requirements and data needs and the number of users. And we think it's overly negative on the OpenAI orbit. If you look at Google, the bar is high. But what I'd say is that all the fundamental checks are phenomenal. Gemini usage, corporate companies going to Google GCP their technology. Again, I think this concept of that Google didn't have AI, they have more AI, more data and more information on all of us across the world than any company on the planet. And that's what you need to make AI work. So they're in an incredible, incredible spot in my view. You know, is the bar high? Yes. Is it, is it too high to clear? I don't think so. And again I'm, we're incredibly bullish still, long term of what Google can do But I think matter to us was the massive disconnect on the valuation of such a. You could drive a semi, semi trailer sideways through the disconnect in the multiple and that's why we're, why we were so, why we're so constructive on what Meadows doing.
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Kelly Evans
I know it's gratifying to see one come in like that. So again, it was great to have you on talking about it ahead of time and now to see the fruits of that. Brent, appreciate your discussion today. Thanks so much.
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Brent Thale
Thanks, Kelly.
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Kelly Evans
Brent Hill joining us from Jefferies there. Now let's get to some major changes over at Tesla, where CEO Elon Musk announced last night the EV maker will soon retire its Model X and S vehicles and repurpose that factory to build Optimus humanoid robots. Yes, it's a big deal. This move comes just as Tesla wraps up its first annual sales decline with shares losing all their post earnings gains as well. By the way, they're down two and a half percent this hour. My next guest says forget the Tesla you once knew. Musk has reached a definitive burn the ships inflection point. Speaking of inflection points like we were just talking about with Brent Thale, let's bring in George Generic, a sustainability research analyst at canaccord. There's no turning back. George, is that what you're saying now?
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George Janarik
Absolutely. I mean, there were two big announcements in our opinion yesterday. First and foremost, not really a PNL impact, but they are discontinuing the models S and X and those were instrumental to the company's growth in its early stages. And more importantly for the pnl, the company announced on the call that they're going to spend $20 billion on capex. That's more than 2x what they spent in 2025. And they're going to spend it to increase production for robots, for autonomous vehicles, for batteries. And that doesn't include potential spend on a semiconductor fed, which they sort of alluded to yesterday they may build in the coming year. So this is a massive inflection for tests. I mean they've always talked about this stuff. But to finally cut ties to the SNX, spend 20 billion in CapEx, and maybe even build a semi fab, it's a pretty big deal.
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Kelly Evans
Is it going to pay off? I noted you lowered your price target to 520 from 551.
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George Janarik
We think so. But it does make modeling the company in the out years incredibly difficult relative to what we used to do. And we just sort of took vehicle sales, assumed a certain penetration Looked at what was happening, particular markets, but now it's a bet on autonomy and how many Robotaxis they could sell, what kind of penetration they get with robo taxis, how quickly they launch those markets and then how many robots will they sell. And they're going to increase production to about a million of those by the end of the decade. And it's really hard to know. This is a brand new market. You know, there aren't many humanoid robots out there yet and I mean there's a lot of competition. We asked about that on the call yesterday. But these are moments in time where you have to make bets and sort of model things out that really don't exist today.
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Kelly Evans
Would you rather he. You know, I mean, I think this is why people love the stock. That's why they love Musk. Right. That, you know, he's never going to give you the boring. Yeah, we beat the quarter by 2 cents and you know, here's, here's our visibility to the out year. Right? He's like, no, we're ending one production line and we're building human humanoid robots. And also, I mean, cybercab. Is that part of this as well?
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George Janarik
Yeah. So the Cyber Cab is going to be the steering wheel less vehicle that sort of is the beginning of their robotaxi moment. They will have model Threes and model Y's that can become robo taxis. But this is the futuristic looking vehicle that's not going to have a steering wheel, that's going to transport vehicle like an Uber does or a Lyft does in multiple markets across the country and eventually across the world. And they, what they said on the call yesterday, they plan to make more of those and sell more of those than they have every, every other vehicle in their, in their lineup. So it's a really big deal. And what they're likely going to do in our opinion is own some of those themselves and have their own service, then potentially sell those to customers who can then tap into the Tesla network and create income for themselves by putting their vehicles onto the Tesla Robotaxi network.
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Kelly Evans
It's still a $1.4 trillion company, you know, close to an all time high for the stock. So, you know, at this point it's as much about the dream and the vision of Musk as it is about anything to do.
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Deirdre Bosa
I don't.
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Kelly Evans
If you were to just literally analyze the financials in the absence of the genius of Musk, what would this company be worth?
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George Janarik
I mean, look there, they've been a disruptor in this market for well, over a decade and we've been asked this question, how do you value Tesla relative to the automakers? And you can sort of flip that question on its head and say, how do you value Google relative to media companies? How do you value Netflix relative to media companies? How do you value Amazon relative to retailers? It's a disruptor. And now they're sort of disrupting themselves. Right. They're going to take a giant leap forward, get into new markets, probably be free cash flow negative in 2026. But you're right, you have to bet on Elon Musk. You have to look at his success in the past and assume that he can do it again. And it's not a coincidence that his compensation package was approved and now he's taking these steps, I mean, these giant bets for the company and literally world altering products that he's going to put in the marketplace.
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Kelly Evans
Yeah, and I forget how big the comp package is. How much could he stand to make if he gets this right? Because the fact that he hit the first one was hilarious. The targets were so high. Who would have thought he'd achieve it and then have a fight over it? And now the bar has been raised yet again.
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George Janarik
Yeah, I mean, he's going to have a lot more money than I do. I mean, he'll be very likely the world's first trillionaire if he does what he's set out to do.
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Kelly Evans
All right. And the shareholders are, for the most part want to be along for that ride. We'll see if he can pull it off again. George, thanks so much. Appreciate it. Today, George Janarik is with Canaccord. Coming up, investors are turning their attention to Apple. Reporting after the bell today, what to expect here. It's more of a hardware name. What would the spike in memory prices have to do with your next iPhone price? And the shares are down 10% from December's record high. Before all that though, we mentioned what's going on with the metals. Some whips off trading this morning. Gold is way off its highs from the morning. Copper though is rising. Palladiums lower. Copper's at a record high and on track for its first six month win streak in 15 years. We'll look at the options market. What that's telling us about these metal moves, that's next on the Exchange. This is the exchange on CNBC.
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Brent Thale
ABC's David Muir, the most trusted anchor in America.
- [16:06]
Kelly Evans
The most watched anchor in America. Thank you for making World News Tonight with David Muir. The the number one newscast in America.
- [16:13]
David Muir
Most trusted, most watched David Muir on ABC.
- [16:17]
Kelly Evans
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- [16:48]
Deirdre Bosa
At.
- [16:49]
Kelly Evans
Strayer University, we help students like you go from Is it possible? To Anything is possible by offering access to up to 10 no cost gen Ed courses so you can reach your goals affordably and fast. Visit strayer.edu to learn more. No cost gen eds provided by strayer University Affiliate SOFIA Eligibility rules apply. Connect with us for details. Strayer University is certified to operate in Virginia by Chef and has many campuses, including at 2121 15th Street north in Arlington, Virginia. Welcome back and check out the price action in precious metals. We've been getting questions about this all morning long. Gold, silver, copper, all touching record highs today, but also seeing some big volatility this morning. Gold and silver are on pace for their best month in more than 45 years. By the way, maybe Pippa Stevens can explain what's going on here.
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Pippa Stevens
Pippa hey Kelly. So gold is at a new high after posting its ninth record close yesterday, and silver crossed above that 120 level before pulling back a little bit here. Now amid this retail craze, GLD and SLV now among the top 10 most traded names. That's according to Nasdaq's retail activity tracker. Yesterday SLV was the third most traded name, just behind Tesla and Nvidia. You can see it really stands out amid all of these tech names otherwise. But today's big talker is really copper because earlier in the day LME prices were up almost 12%, which would have triggered a limit up. That is something that has never happened before and the magnitude of this move has been really astounding. If we go back, the run really began at the end of September and prices are up 30% since we first crossed above that $12,000 level on December 23rd, then 13,000 on January 5th, and then today we did get up to 14K on an intraday basis. Now Albert MacKenzie from Benchmark Mineral Intelligence told me it is really hard to describe to someone outside of this market just how baffling this move is. Copper is usually pretty stable. It is not a tech stack that can swing 10% in a day. And so a move like this is almost unheard of. He added that since this uptrend began back in September, basically nothing has changed on the fundamental side. So we could see a little bit of a decline going forward here.
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Kelly Evans
Kelly, come on over. I think these are the questions on everyone's minds. Want to know, are metals prices soaring because the dollar is imploding? Are they soaring because there's been a big change in demand by key players like central banks or because there's a shortage in all these big picture reasons? Or are they flying because there's a lot of speculators in the market now?
- [19:17]
Pippa Stevens
I think it started with people thinking about the dollar and maybe thinking about that debasement trade and then geopolitical tensions and the kind of quest for hard assets. But then it starts to feed on itself and really becomes this momentum trade. And so it started with gold and silver and copper was, was kind of left out of it a little bit. And then today something has happened. I mean we saw a lot of activity overnight, particularly in Asian markets on the LME. That's when that price was up 11%. But copper just does not move like this. I mean you can see something like that in a silver market which is a little bit smaller. But copper has been, you know, Dr. Copper, it's not the most exciting trade usually.
- [19:52]
Kelly Evans
And I always think it's one thing to move shares of GameStop, I mean who cares, right? But when you're moving the price of important kind of components of the global economy, it makes me a little nervous quickly. I don't know if we can show the intraday what happened this morning that all of a sudden around 930 was a $400 reversal in the gold price. Was there anything significant or is that nothing?
- [20:08]
Pippa Stevens
It was just a lot of overnight trading that came from that Asia side. If you look at the hours of when the activity took place and then just a pullback. But it does speak to that volatility, that interest from retail traders. But one thing is that on copper and silver there is actually demand destruction at a certain point. Gold is a little bit different. It seems like with silver we definitely hit that demand destruction level already. But it does take a while for the spot price to then feed through into actual industrial players pulling back.
- [20:30]
Kelly Evans
I expect to see more charts like from this morning whether it's flash crashes or these crazy whipsaw trades the way it's been trading for now. Pippa. Thanks Pippa Stevens. Our next guest is watching the options market for the metals rally as the surge in volatility is driving this unusual pricing. For more on what he's seeing, let's bring in Chris Murphy. He's the co head of derivative strategy at Susquehanna. Chris, what do you see going on here? Welcome.
- [20:53]
George Janarik
Hey.
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Chris Murphy
Well, you see something that we've really never seen before, which is implied volatility levels in silver above 100. I mean, I just looked at the graphic that you were showing with the silver move today. When implied volatility is above 100, you're expecting the underlying to move 6% on an average day. So today's move in silver is, is very, very much of a, like a nothing when you compare it to what it's expected to move. So we are starting to see some volatility selling in slv. And you know, of course the volatility can't go much higher, but when it is this high, you do see a lot of unique quirks with the pricing of options.
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Kelly Evans
And when you say quirks, is there any way for the layperson to know? And you know, I mean to me, to me this smacks of memeification of the metals.
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Chris Murphy
Well, I mean one quirk would be, you know, if you bought puts a week ago, and I'm sorry, if you sold puts a week ago and SLV traded up 20%, you would expect to make money on those puts because when stocks go higher, the price of puts should go lower. But the volatility of the SLV over the last five days or so is up so much you have a situation where the underlying is up 20% and those puts have become more expensive. You really never expect to see that. And that's something you have to be careful for. If you say, okay, silver's finally making a pause, let's buy some puts here. If silver pulls back 5, 10, 20%, you might not make money on those puts because volatility could likely come in a lot as well.
- [22:42]
Kelly Evans
This is kind of what I'm trying to say is you're talking about unusual activity, stuff that doesn't quite add up. I'm just watching it going, this reminds me of meme stocks. And so what do you think the knock on effect is going to be? Are people getting sucked into something that's going to spit them back out or is there something more fundamental going on here? Is it the end of fiat currency and it's the devaluation of the dollar and there's sound reasons why all this is happening and we're all going to look back and say, ah, yes, that was the breaking point.
- [23:10]
Chris Murphy
Well, I mean there's an element to the end of moves like this that is pulling in speculation. And then you could see silver and gold pausing today. And then, you know, you were asking questions on the earlier segment about the move in copper. You know, maybe we start to see the momentum players, the last players moving out of silver and into copper. So, you know, we of course are watching that copper move today as well. FCX is a stock that typically people can use to play copper. We have been watching big bullish trades in there for a number of days and weeks now. So we're going to keep an eye on those trades and we're seeing those trades being unloaded today. So, you know, you figure someone who's making those trades has a strong opinion on what's going on in the copper market. So to see them monetizing their bullish trades on a day like today combined with silver pausing, volatility, selling and pulling back, you could be looking for signs of some of this mania to slow down a little bit.
- [24:18]
Kelly Evans
All right, for now, Chris, I really appreciate it. Kind of the signpost to a lot of the wacky activity that we're seeing. Chris Murphy over at Susquehanna. Coming up, the AI race is getting harder to predict. Big tech companies competing with the very startups they're also helping to fund. We'll take a closer look at that ahead and keep an eye on the broader markets because despite a lot of the red on your screen there, 10% of the S&P is at 52 week or all time highs. Energy and materials record highs there. Communication services an all time high for the first time since September. That's significant. More after this.
- [24:56]
Brent Thale
ABC's David Muir, the most trusted anchor in America.
- [25:00]
Kelly Evans
The most watched anchor in America. Thank you for making World News Tonight with David Muir. The number one newscast in America.
- [25:08]
David Muir
Most trusted, most watched.
- [25:09]
Brent Thale
David Muir on ABC before we had.
- [25:12]
Kelly Evans
AT and T Business wireless coverage, our delivery GPS wasn't the most reliable. Once our driver had to do a 14 point turn to get back on route.
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George Janarik
A 14 point turn.
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Kelly Evans
An influencer even livestream the whole thing. Not good for business. Now with AT&T business Wireless routes are.
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Chris Murphy
Updating on the fly and deliveries are on time.
- [25:33]
Kelly Evans
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- [26:17]
Pippa Stevens
Welcome back.
- [26:18]
Kelly Evans
And here's a look at the markets which are well off session lows. The Dow was down as many as 418 points this morning. We're only down 134 right now. The NASDAQ down about 1.4%. It remains the underperformer. And it's not just the mega cap story there. It's the software stocks that have entered a bear market. They're on track for their worst day since April, worst month since 2008. They're down more than 20% from September's record high. Besides Microsoft, Atlassian, ServiceNow, Intuit and Salesforce are all down big. ServiceNow's down 12%. Salesforce is at its lowest level in more than two years and it's having its worst month also since 2008. It's also the second worst Dow stock over the past year, only behind UnitedHealth. It's down 40% and it's down 20% since joining the Dow in late 2020. On the flip side, Royal Caribbean is leading the S and P today after forecasting annual profit above estimates. Investors thinking a rising tide lifts all boats with Norwegian and Carnival shares also rising sharply in sympathy. And speaking of tech, shares of Microsoft are plummeting amid concerns about its exposure to OpenAI as well as they're down almost 12% today. Deirdre Bosa has more on their shifting relationship in today's tech check. Deirdre.
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Deirdre Bosa
Hey Kelly. So it used to be Microsoft's biggest boost in the air race for years. It's now a source of anxiety. Feels like everyone's focusing on this RPO number. So let me break that one down. RPO or remaining performance obligation. It's essentially backlog revenue that Microsoft expects to recognize in the future from contracts that are already signed. The issue is concentration. About 45% of that backlog dialogue, it's tied to OpenAI. So when OpenAI looks like a locked in exclusive growth engine, that was a feature. But now with model commoditization potential new owners at the table like Microsoft's biggest cloud rival, Amazon, that starts to look like a risk. So investors are not just asking how durable is that demand of OpenAI's compute spend shifts or get shared? But they're also wondering what Microsoft is doing to compete in the next leg of the air race at large. Which research we're seeing it maybe less about models, more about products in my world, Kelly the intersection of Silicon Valley and Wall street anthropics. Claude it has been stealing every moment, but in particular the Excel moment. Something that should have been Microsoft's for the taking. And earlier today you had Melius's Ben Wright says the Microsoft bull saying that anthropic cowork was something that a kindergartner could look at and go, wow, why isn't Microsoft doing that? OpenAI itself, it's been on the defense over the last few months, but its next frontier model, GPT6, that is expected in the second quarter and it's going to be trained on Blackwell chips. So that could put the narrative back in OpenAI's favor. But for Microsoft, it's more complicated. It will not get the same boost that it has got from OpenAI's glow in the past.
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Kelly Evans
Yeah, I mean, and to Brent's point, the quarter was decent, but investors are looking for this inflection point where the trajectory, you know, it's like growing, growing at a good pace is I guess not good enough anymore.
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Deirdre Bosa
Customer. Right. Especially when you compare it with Metta. Right. And you know, we looked at these things and sort of this scorecard, how do you balance revenue growth with model performance with adoption of things like copilot versus, you know, open AI's enterprise business? And there's a lot that goes into sort of who's on top of AI right now and Microsoft. That dependence on OpenAI is taking a lot away from, you know, certainty going forward. And that's what, what all the RPO chatter is about is that, is that actual durable growth. Are those contracts in the future, could they go just to OpenAI simply because OpenAI, you know, is now a major enterprise competitor, not to mention anthropic.
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Kelly Evans
All right, Deirdre, thanks very much. Appreciate it. Deirdre Bosa to Dom Chu now for the CNBC news update. Hi Dom.
- [30:00]
Dom Chu
Hey Kelly. So a federal appeals court ruled late Wednesday that the Trump administration acted illegally when it actually legal protections for hundreds of thousands of Venezuelans who were allowed to live and work in the U.S. the three judge panel upheld a lower court ruling that said Homeland Security Secretary Kristi Noem exceeded her authority when she ended their temporary protected status. The Supreme Court will ultimately decide this issue. Maine Republican Senator Susan Collins said today that ICE informed her it has ended its stepped up enforcement operation in the state after five days and 206 arrests. Activists tracking federal agent movements reported a big drop off in activity in recent days leading to speculation that the administration was rethinking its approach after a second American was killed last weekend in Minneapolis. And the European Union today named Iran's Revolutionary Guard a terrorist organization and sanctioned 15 Iranian officials over the deadly crackdown on nationwide protests recently. The sanctions add pressure on Tehran as the Trump administration moves the USS Abraham Lincoln carrier strike group into the region. So tensions on the rise in the Middle East. Kelly, I'll send things back.
- [31:10]
Kelly Evans
Quite the group. I don't know if it's an armada, but quite a group of ships over there now. Dom, thanks very much. Coming up, why this chart may be the real explainer of what's been weighing on the dollar and what it means for the metals trade. We'll reveal it next. And as we head to break, here are some of the names bucking today's downtrend and hitting new all, all time highs. Lockheed, Caterpillar, Valero, Exxon and Freeport McMoRan. And Lockheed, which is up 5% today, is now up 30% this month, its best month since 1980, believe it or not. We're back after this. Chair Jerome Powell upgraded growth to solid from moderate in his press conference yesterday after the Fed's meeting and he said the labor market showed signs of stabilization. Both of my next guests are still forecasting two rate cuts this year, but their timelines are quite different. Joining me now are Michael Gapen, chief US Economist at Morgan Stanley, and Barry Knapp, director of research at Ironsides Macro. It's great to have you both here. And Barry, I'll start with you. What's the significance around the Fed's action or non action yesterday? And it doesn't have anything to this weird move in the dollar and some of the metals this morning. I don't know if that's Fed related or at this point if it's just highly volatile as a trade.
- [32:24]
David Muir
Now, the dollar had a structural break with the market implied Fed policy path on liberation Day. If you graph that near term forward, spread the three month rate 18 months forward, less a spot three month rate, sort of a proxy for expectations around what the Fed's going to do. It was super closely correlated, you know, in 22, 23, 24, early 25 and then and at Liberation Day it broke. And the, the movement in the dollar now is I think the start of a secular change, the structural overvaluation of the dollar that in a lot of ways is attributable to our so called trading partners, currency policies. There's all sorts of examples, things like Taiwanese insurance Companies not having to mark their currency fluctuations on foreign bonds to mark to market. You know, obviously China recycling all their surplus into, into Treasuries, all those things are shifting. And I think the dollar is undergoing a secular decline. The trick for Treasury Secretary Bessant will be making sure it doesn't get disorderly.
- [33:31]
Kelly Evans
Okay, thank you. And I think you're bringing it to the crucial point because metals prices are acting like it's already disorderly.
- [33:39]
David Muir
Fair. You know, the move in gold. I think there's a strong case for gold. In as much as China is diverting a lot of their exports to the rest of the world, their exports to the US or our imports of Chinese products are down 43 and a half percent year to date. We just got the November numbers this morning. So China is not accumulating dollars, which means they're accumulating, you know, things like Mexican pesos, right? Importing to Mexico to divert it to the US they're trying to divert exports to Europe and they're putting that money into gold. But when it goes straight up like this, you know, I was a trader. I worked in derivatives at one time. You know, you have to sort of go with what your prior guest, Chris Murphy, I think is. Chris Murphy was talking about, that things just go parabolic and it gets, it gets kind of goofy, but it's not.
- [34:27]
Kelly Evans
And Michael, I'll turn to you for this as well. You know, you've all seen the narratives, right? The narrative is this is dollar debasement. It's fiat collapse. Pick, pick who you think is responsible for that. But it's, you know. So I'm curious, from your point of view, Michael, is this something worrisome? Does it raise on the margin the risk of import inflation? Because I'm pretty sure in the literature when you use tariffs, your currency is supposed to appreciate, not depreciate, right? So if we impose tariffs which raise import prices, and then the currency falls 10%, which further raises import prices, at some point, aren't we going to have an inflation problem?
- [35:03]
Michael Gapen
Well, you do risk it. The what's nice about the US in that regard is the trade channel is pretty small. Their imports are not a significant contributor to inflation. So, I mean, if Barry's right and there's a secular move in the dollar, maybe you'll get some persistent upward pressure on import prices. But historically, it would be very unusual for import prices to drive inflation in the US And I just say one other, you know, what do I always have in the back of my mind about dollar weakness? It's the net international investment position of the US the rest of the world holds $62 trillion in US dollar liabilities. And so you can't recycle that anywhere else into another market. Of course, there's no other market that can handle that size. So you have to decide at what price you want to hold the dollar asset. And do you want to hedge? So I think again, if Barry's right, we're in a secular downward trend in the dollar, and geopolitics are a concern you need. And that doesn't argue for a disorderly move in the dollar, but it could help fuel that, that weakening trend. So I do think the net international investment position here is something we, we need to keep in the back of our mind is what's also driving this.
- [36:19]
Kelly Evans
Meaning it's the safety net we were just showing the euro, which is up near 120. It's not really getting a lot of attention. The European economy has been better. The European stock market has been better. The European Central Bank's already at 2% and not cutting anymore. And shifting interest rate differentials have, have a lot to do with why the euro stronger against the dollar. Michael, is that kind of what you're talking about, or are you referring more to the fact that there's so many people who need dollar exposure?
- [36:44]
Michael Gapen
I just think that there are so many investors sitting outside the United States that hold dollar assets. Right. So the rest of the world holding our equities and our treasury bills and that position is $62 trillion. Right. So if you were saying, oh, I want to, I don't like what the US Is doing, I want to sell dollar assets and rebalance somewhere else. There's no market that can absorb that. Right. So you have to hold dollar assets. But so if you're a foreign investor and you've held equities, normally if there's a risk off moment, the dollar appreciates. But right now that, that correlation is, has flipped. So now you need to hedge your portfolio. So I just think it's the, the relative position where the US holds about $36 trillion in foreign assets. The rest of the world holds $62 trillion in our assets. And if, and you now need to hedge dollars, then it's going to put a lot of persistent downward pressure on the dollar.
- [37:42]
Kelly Evans
I see. Interesting. And why is it change, Barry, what happened with Liberation Day? Was it the tariffs?
- [37:48]
David Muir
Oh, it goes beyond the tariffs. I strongly suspect that in every one of these trade meetings, the, the unspoken piece or piece that they've agreed not to speak about is that Treasury Secretary Bess is applying pressure saying you are not going to do what China did when we enacted 10% tariffs in 2018, depreciate your currency by 10% and offset those tariffs. I think there's a lot of pressure on the rest of the world to not take those steps. And one piece of evidence of that was the almost impulsive appreciation of the Taiwanese dollar back in, I think it was early July just kind of shot up and that was during those trade negotiations. So I think we're making it very clear that we're not going to accept, you know, putting tariffs in place and then having countries trying to depreciate their currency through various policies away from that. I would also add to what Mike said, which is, you know, really profound. If you, if you run a current account surplus, by definition, if you have an open capital account, you have to run a capital account deficit. So Europe is still running a current account or trade surplus with the US I looked at the numbers today. It's going up sharply in Ireland. Well, guess why that's happening. Those are US Companies doing transfer pricing based tax, arbitrary right, and accumulate accumulating those assets in Europe. Germany's deficit is going down. That's selling cars to the U.S. but that money, if there's a current account surplus mean or deficit surplus with the US means they need to have a capital deficit that needs to offset so the money winds up in the US One way or another. Unless, you know, as I said over time, if the US trade deficit does enter into a secular decline, which it did in the 70s when Nixon took similar actions as the Trump administration, we could be in for something similar, you know, in this cycle and that would reduce demand over time. But, but again, as Mike said, there's really nowhere to go with that 62 trillion of assets.
- [39:57]
Dom Chu
Right.
- [39:58]
Kelly Evans
So there's no. We got to go, Michael. But there's no fundamental concern about the quality of the US Then it just.
- [40:03]
Michael Gapen
Quickly, I think there's concern about where the US Is heading from a policymaking perspective. Right. So I do think whether it's fiscal sustainability, protectionism, trade policy, geopolitics, there's increased country risk from, from the point of view of a foreign investor on the U.S. i do think that's, that's part of the, part of the story.
- [40:23]
Kelly Evans
Fascinating. We got to bring you both back. This was, it's like we're just starting. But there's more to come. We've got some news to get to. Michael Gape and Barry Knapp really, really Appreciate it. Thank you for your time. We were talking Tesla earlier on, but we've got a news alert on two of Elon Musk's other companies. Don Chu, what's happening?
- [40:38]
Dom Chu
Well, one of which, Kelly, is probably going to be one of the most highly anticipated public offerings in the future here. We're talking about SpaceX.
- [40:46]
Brent Thale
So.
- [40:46]
Dom Chu
So this is according to a Reuters report citing sources familiar with the matter. They are reporting that Elon Musk's SpaceX and Xai, those two separate companies, are in right now discussions to merge ahead of a possible public offering planned for later on this year. Again, that's according to a person briefed on the matter. Now, this is interesting only because it would be a transaction in which shares of XAI would then be exchanged for shares of Space X ahead of this particular anticipated ipo. So an interesting development here with regard to two of Elon Musk's probably most public companies in terms of, you know, maybe its overall view, but not the public ones like Tesla. An interesting move there. We're showing you some of the valuations in the private markets right now. Kelly. We'll bring you more as we know more. We are in the process of reaching out to both SpaceX and Xai for comment. We'll bring you those updates as we know more here. Kelly, I'll send this back over.
- [41:41]
Kelly Evans
Appreciate it. A lot of speculation about not just those two combining. Could it ultimately be combined with a Tesla down there? Who knows? We'll see. He's always full of surprises. Dom, thanks. Coming up after last night's earnings reports, shares of Metta are up, but shares of Microsoft are down. They are in fact on pace for their worst day since March of 2020 and shaving more than 180 points off the NASDAQ 100. Next to report is Apple after the bell. We'll tell you what those expectations are after the break. Welcome back. We've got another quick news alert. This time it's on the prediction markets and the Super Bowl. What could it be?
- [42:17]
Deirdre Bosa
Contessa Brewer, are you ready for this? What do prediction markets have in common with sex and smoking? Front Office Sports report says prediction markets have been put on a prohibited list from running super bowl ads. And Front Office Sports points out that pornography and tobacco are also on that list. Incorrect was the word an NFL spokesman said when I called to ask about it. NFL considers prediction markets gambling. The NFL has three official partners. They have Caesars FanDuel, which is owned by Flitter and DraftKings. They also have approved Sportsbook Operators. So, for instance, Fanatics this year has bought time and will run a Super bowl app. The NFL says that's an approved operator, an approved sportsbook operator. Those are the only categories the NFL spokesman says. Look, prediction markets like Kalshee and polymarket are neither approved partners nor approved sportsbook operators. Therefore, that is why they can't have gambling ads on the super bowl, at least not this year. What happens between now and next year? Let's wait and see.
- [43:23]
Kelly Evans
So they, so prediction markets can advertise?
- [43:26]
Deirdre Bosa
They cannot. They cannot because they are not but not prohibited. That's the point. They've not been banned. They just don't because they're considered gambling. This is from the NFL. They can't advertise because they're not official partners and they're not approved sportsbook operators.
- [43:42]
Kelly Evans
I see.
- [43:43]
Deirdre Bosa
However, as you know, Kalshee and polymarket say it's not gambling, it's financial investments. And that's what they're arguing in federal court. So between now and next year, we may get some answers from federal court, maybe even Supreme Court about what's what.
- [43:59]
Kelly Evans
In the meantime, they better act fast on those ads. Contessa. Thanks Contessa Brewer. Speaking of, I don't know. Apple reports after the bell today strong iPhone numbers are expected, although its AI plans also remain in focus. Steve Kovac is in Cupertino, Steve, where. I mean, if hardware is the new software in the markets, they are a hardware company. So maybe they need to play down the software narrative and stop talking about things that.
- [44:23]
Dom Chu
That's very possible, Kelly. And look, it is going to be a big quarter for the iPhone. That is what Apple guided to last quarter, saying to expect double digit percentage revenue growth, top line revenue growth. We haven't seen that in the December quarter in quite some time here. So we already know that's kind of baked in. The big question is, of course, a couple of weeks ago that big partnership announced between Apple and Google's Gemini product. It's going to to be sort of baked into that new version of Siri we're expecting in about a month or so and whether or not that can be monetizable. But again, to your point, it's a hardware play, not a software play because Apple Intelligence is a free product. It comes with the phone that you buy. And so the real way they're going to be able to monetize this, at least at first, is going to be from convincing people to upgrade their devices to use Apple Intelligence. Down the road, maybe there's, there's some more monetization there.
- [45:15]
Kelly Evans
There.
- [45:15]
Dom Chu
Also another thing we're going to be watching is the tariff impact. Apple said to expect about $1.4 billion of a tariff bill for that December quarter due to the high volume of products they sell. And then also memory prices. There's been a lot of consternation on the street and analysts talking about this and how that could impact memory, impact margins here at Apple just because memory is getting so expensive as with AI competition.
- [45:41]
Kelly Evans
KELLY all right. That's what I'm definitely going to be listening for. See if they talk more about that. Steve, thanks. Appreciate it. Steve kovac, Coming up, the latest from Starbucks Investor Day. Some fresh details right after the break. Starbucks is holding its investor day after the shares failed to hold their rally after results the other day. But Kate Rogers is there and has new content from the cfo. Hi, Kate.
- [46:06]
Deirdre Bosa
Hey, Kelly. So so the financial guidance that was given today was really what Wall street has been waiting for. We'll take you through the numbers now.
- [46:12]
Kelly Evans
In 2028, Starbucks has plans for 2.
- [46:15]
Deirdre Bosa
To 3% revenue contribution from new stores, 2,000 more new stores, including 400 here in the U.S. also forecasts consolidated net revenues growing by 5% or more in fiscal year 28 and operational margins between.
- [46:28]
Kelly Evans
13 and a half and 15%, which.
- [46:30]
Deirdre Bosa
Means $3.35 to $4 a share by fiscal year 2028.
- [46:35]
Kelly Evans
Now, some of this margin expansion includes.
- [46:38]
Deirdre Bosa
Targeted pricing, mostly to offset inflation. I asked CFO Kathy Smith specifically about that targeted pricing and what it might mean. Take a listen. I'll start with margin growth is first going to come from probably not pricing. For us, pricing is going to be our last lever.
- [46:53]
Kelly Evans
Having a great value perception by our.
- [46:56]
Deirdre Bosa
Customers is really important.
- [46:57]
Kelly Evans
Our value scores are kind of of.
- [46:59]
Deirdre Bosa
Back at all time highs now across all age groups, which is terrific. So we want to use price very selectively, only raise price when we have to. So you can hear there. KELLY Targeted pricing only when necessary. And that global comp and the US comp for 2028, 3% or more.
- [47:18]
Kelly Evans
Back over to you, Kate. Thank you very much. Appreciate it. Kate Rogers and Power Ledge after a break. You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time, same place. At Strayer University we help students like you go from is it possible to anything is possible by offering access to up to 10 no cost gen Ed courses so you can reach your goals affordably and fast. Visit Strayer. Edu to learn more. No cost Gen Ed provided by Strayer University affiliate SOPHIA eligibility rules apply. Connect with us for details. Strayer University is certified to operate in Virginia by CHEV and has many campuses, including at 2121 15th Street north in Arlington, Virginia.